ACQUISITIONS

12 Months Ended

Dec. 29, 2024

Horn Solutions

On December 12, 2022, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Horn Solutions. The purchase price of $42.7 million was paid at closing with $33.9 million in cash and $3.4 million of the Company common stock (254,455 shares of the Company common stock privately placed under Section 4(a)(2) of the Securities Act of 1933, as amended), as well as a two-year convertible promissory note of $4.4 million with an annual interest rate of 6%, with interest paid quarterly. The promissory note is convertible into shares of the Company common stock at any time after the one-year anniversary of the promissory note at a conversion price equal to $17.12 per share. The promissory note is subordinate to the Company’s senior debt. An additional portion of the purchase price, $1.0 million in cash, was held back as partial security for a post-closing purchase price adjustment. The asset purchase agreement contained a provision for a “true up” of acquired working capital within 120 days after the closing date. In May 2023, the hold back and true-up were paid, adjusting businesses acquired by $0.1 million in goodwill. The purchase price at closing was paid out of funds under the Company’s credit agreement led by BMO, see “Note 12 - Debt”.

The acquired business was assigned to the Professional segment. The acquisition of Horn Solutions allowed the Company to strengthen and expand its finance and accounting operations by providing consulting, project loan staff, interim staff, direct hire, and managed services through three complementary business units: strategic accounting and finance, information technology, and transactional accounting and office staffing. Horn Solutions provides services to clients in a variety of industries including, but not limited to energy, financial services, healthcare, real estate and construction, service, manufacturing, and software industries.

Shortly after closing, Horn Solutions was fully integrated into the Company's organizational structure and does not operate as a discrete entity. Consequently, the amount of revenue and earnings of Horn Solutions included in the consolidated statement of operations and comprehensive (loss) income since the acquisition date is impracticable to provide.

The purchase price has been allocated to the assets acquired and liabilities assumed as of the date of acquisition as follows (in thousands):


Accounts receivable	$	3,734
Prepaid expenses and other assets	118
Property and equipment, net	83
Right-of-use asset - operating leases	1,528
Intangible assets	13,484
Goodwill (deductible tax basis of $26.1 million)	26,610
Current liabilities assumed	(1,787)

Lease liability - operating leases	(1,528)
Total net assets acquired	$	42,242

Cash	$	33,940
Hold back	1,000
Convertible Note	4,368
Common stock	3,351
Working capital adjustment	(417)
Total fair value of consideration transferred for acquired business	$	42,242

The allocation of the intangible assets is as follows (in thousands):


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	50	5 years

Client partner list	13,434		10 years
Total	$	13,484

The Company incurred costs of $0.4 million in Fiscal 2023 and Fiscal 2022 related to the Horn Solutions acquisition. These costs were expensed as incurred in selling, general, and administrative expenses.

Arroyo Consulting

On April 24, 2023, the Company acquired substantially all of the assets, and assumed certain of the liabilities, of Arroyo Consulting for cash consideration of $6.8 million. Certain post-closing liabilities were held back of $0.4 million and a partial security for any indemnification obligation was held back for one year of $0.9 million. The purchase agreement further provides for contingent consideration of up to $8.5 million based on the performance of the acquired business for the two years following the date of acquisition. The purchase price at closing was paid out of funds under the Company’s credit agreement led by BMO, see “Note 12 - Debt”. The purchase agreement contained a provision for a “true up” of acquired working capital, which was paid on July 1, 2024, out of the delayed draw funds under the Company's credit agreement along with the hold backs and the year one payment of $4.3 million for contingent consideration.

The acquired business was assigned to the Professional segment. The acquisition of Arroyo Consulting allows the Company to strengthen the go-to-market cross-selling efforts providing clients a cost effective alternative offering nearshore and offshore IT resources. Arroyo Consulting provides nearshore and offshore professional workforce solutions specializing in IT and software development with operations in the United States, Colombia, and India.

The 2022 consolidated statements of operations and comprehensive (loss) income do not include any operating results of Arroyo Consulting. The Fiscal 2023 consolidated statement of operations and comprehensive (loss) income included thirty-six weeks for approximately $14.8 million of revenue and $4.0 million of operating income, which included $0.7 million in amortization expense on acquisition intangibles.

The final purchase price has been allocated to the assets acquired and liabilities as follows (in thousands):


	Preliminary		Adjustments		Final
Accounts receivable	$	3,452	$	24	$	3,476
Prepaid expenses and other assets	—		72		72
Property and equipment, net	—		145		145
Right-of-use asset - operating leases	141		—		141
Intangible assets	11,468		293		11,761
Goodwill (no deductible tax basis)	3,836		(437)		3,399
Current liabilities assumed	(2,471)		(150)		(2,621)
Lease liability - operating leases	(140)		55		(85)
Total net assets acquired	$	16,286	$	2	$	16,288

Cash					$	6,800
Hold back, working capital*					350
Hold back, indemnities*					850
Working capital adjustment*					679
Fair value of contingent consideration					7,609
Total fair value of consideration transferred for acquired business					$	16,288

*Included in Other current liabilities

The allocation of the intangible assets is as follows (in thousands):


	Estimated Fair Value		Estimated Useful Lives
Covenants not to compete	$	356	5 years

Client partner list	11,235		10 years
Computer software	170		5 years
Total	$	11,761

The Company incurred costs of $0.6 million in Fiscal 2024 and 2023 related to the Arroyo Consulting acquisition. These costs were expensed as incurred in selling, general, and administrative expenses.

Supplemental Unaudited Pro Forma Information

The Company estimates what would have been reported if the revenues and net loss from continuing operations of the Horn Solutions and Arroyo Consulting acquisition had taken place on the first day of the Company’s Fiscal 2023 (in thousands, except income per share):


	December 31, 2023		January 1, 2023
Revenues	$	320	$	346
Gross profit	$	114	$	123
Net loss from continuing operations	$	(10)	$	13
Net loss per share from continuing operations:
Basic	$	(0.88)	$	1.29
Diluted	$	(0.88)	$	1.29

Pro forma net loss includes amortization of primarily client partner lists, interest expense on additional borrowings on the new term loan and the revolving facility (the “Revolving Facility”)(see “Note 12 - Debt”) at a rate of 7.1%. The tax benefit of the pro forma adjustments at an effective tax rate of 22.3% for Fiscal 2023 and 24.5% for Fiscal 2022. The pro forma operating results include adjustments to Arroyo Consulting related to synergy adjustments for expenses that would be duplicative and other non-recurring, non-operating and out of period expense items once integrated with the Company. There were no material nonrecurring adjustments.

Amounts set forth above are not necessarily indicative of the results that would have been attained had the Arroyo Consulting acquisition taken place on the first day of Fiscal 2022 or of the results that may be achieved by the combined enterprise in the future.